January 06, 2013
Bye Bye Shopping Malls Due To Online Buying
Jeff Jordan, a partner at venture capital firm Andreessen Horowitz, takes a look at dying shopping malls that are failing due to the shift to online buying.
Speaking as someone who has never enjoyed shopping online shopping is a boon. Far larger selection, more competition with tons of price comparison, shopping any time at any hour of of day, any day of the week, and on holidays. That's great. Love it. I go months without stepping foot inside a bricks and mortar shopping center. What I still buy in person: food and gasoline. Occasional trips to a drug store for chocolate or liquor.
What's interesting about the migration to online buying: people getting more stuff shipped to them is only part of the story. Whole categories of goods have gone virtual and, in the process, their new forms destroy the demand for other physical goods. Take ebooks. They also destroy demand for book shelves. You don't need lots of bookshelves to hold your Kindle or Nook books. You also do not need shelves to hold records, cassette tapes, or VCR tapes.
Of course, if you do not need records you do not a phonograph to play them. You also do not need a VCR or a high end Nakamichi cassette deck. You might decide you don't need a wristwatch either or a portable cassette or CD player since your phone serves both of those purposes. Bye bye lots of retail stores.
A drop in demand for retail stores also cuts demand for cars to travel to them as well as gasoline, oil changes, car repair, and mass transit rides. Physical goods ordered online and delivered directly to your front step are delivered in a more energy-efficient fashion. The two-way trips of many people get replaced by a loop by a delivery truck which makes many deliveries in the same neighborhood.
Or how about cameras? How about film? Lots of film development drop-off kiosks have disappeared. Lots more pictures being taken by the phone. Think about the phone. It is absorbing so many other functions. Music, books, maps. What's the strangest thing you find you use the phone for?
What's the most notable physical good that you no longer buy? Any surprises? What are you looking forward to no longer buying as electronic and internet technologies advance? Do you expect advances in other technologies to collapse demand for still other goods?
Here's what I'm most looking forward to: rejuvenation biotechnologies that will cause a collapse in the demand for wheelchairs, canes, and the myriad of other goods used by old people to compensate for their physical and mental deterioration.
Randall Parker, 2013 January 06 08:58 PM
I would like to take out a restraining order against futurists who fail. Is there an app for that?
"The two-way trips of many people get replaced by a loop by a delivery truck which makes many deliveries in the same neighborhood."
It turns out that trucks and buses are easier to convert to natural gas or electricity, as the companies that operate them have the infrastructure and capital to make it profitable for themselves. This is a step in the right direction to bring stability to the world.
Also, at some point, innovation in these mobile phones that contain everything (watch, music, computer, TV, etc) becomes more mature, the need to buy a new one every year will diminish significantly. This can bring stability to the world, but it will not decrease consumption, on the contrary, more innovative products will be more quickly bought and sold this way.
And as an added bonus: millions of miserable, part-time, no benefit, slave-labor retail jobs created since 2009 (in fact the ONLY jobs created since 2009) will vanish, to be replaced by... NOTHING.
I think the malls were failing even before that. The "get them in, get their money, kick them out" mentality was reducing the number of people shopping in the malls. Another problem was teens hanging out in the malls. The local mall has few places to sit, the mall cops grab any coat left unattended for more than 5 minutes (in a rain forest, no less), and lots of teens. They are trying to turn it around, but not making it.
Before the smoking laws, the only places to sit were next to the ash trays. That was a real winner, too. (People who have lung troubles have to sit someplace without smoke, of any kind.)
The mall also ran out one of the few firearms dealers in town. They lost a lot of traffic over that, and have never backed up on it.
It turns out that trucks and buses are easier to convert to natural gas or electricity, as the companies that operate them have the infrastructure and capital to make it profitable for themselves.
Yes. And they tend to be driven slowly and make lots of stops along the delivery route. These are exactly the kind of vehicles that are most easily to electrify or gasify. I can tell you that internet shopping is growing rapidly in popularity as replacement for in-person shopping. My wife and I have done nearly all of our Christmas gift shopping through the internet. My wife has recently begun buying clothes through the internet (I never expected this as women generally like to try things on and many women do shopping as social activity).
I think the internet will largely replace in-person shopping except for daily personal items and groceries. Some of the physical stores are responding to this intelligently by having it where you can order and pay on-line, then pick up free of shipping charge at the nearest physical store. Target, Walmart, and Best Buy have this option.
These days even groceries are getting delivered once you order it from internet. Food can be very standardized, in the future even Amazon might start delivering groceries, with 1 to 5 star ratings from the customers. Amazon can easily make a deal with the food companies.
If delivery of food becomes the standard, would we have a return of the pass-through milk box which used to get bottles of fresh milk from the dairy delivery truck... only refrigerated, and with a frozen-goods compartment? Plus ça changé, plus c'est la même chose.
John S...you're not using your imagination. Your thinking is stuck on a treadmill.
"You don't need lots of bookshelves to hold your Kindle or Nook books. You also do not need shelves to hold records, cassette tapes, or VCR tapes."
And thus you need less space in your home. No room needed to store books, CDs, DVDs, or giant CRT televisions. So homes can be smaller than before, while filling all the same roles. For that matter, what happens to public libraries when every book is an e-book?
One thing I can't generally buy online is clothing. I may buy a shirt here or there, but mostly I prefer to try clothes on in the store, for look, feel, size, etc. Malls are still great places for clothing stores and as showrooms for high value, luxury branded items. Apple can have Apple stores and charge the same price in the store as on the web, and no one can underprice them. The new $1.5 billion City Creek Center mall in Salt Lake has Disney, Tiffany's, Apple, and fashionable clothing stores. It does not have a generic bookstore or toy store or computer store.
I'm semi-dubious about the move to online grocery buying, since much grocery shopping is inherently impulsive. But a massive warehouse could serve a huge market with home delivery, exceptionally low overhead, and huge selection, in the same way that Costco has cleaned up by massively reducing handling costs. Seven items bought purchased at Kroger costs you about $15-20. Seven items purchased at Costco costs you $100. Kroger uses humans to individually shelve and arrange $2 jars of grape jelly. Costco uses forklifts. And people wonder why Costco can afford to pay its employees better.
I don't see that Amazon would have any particular advantage in the online grocery market. More likely it would be existing grocers with existing supplier relationships. As a business it would be a cross between Kroger, Amazon, and Fedex.
John S. said:
"And as an added bonus: millions of miserable, part-time, no benefit, slave-labor retail jobs created since 2009 (in fact the ONLY jobs created since 2009) will vanish, to be replaced by... NOTHING."
This actually couldn't be less correct. Having built a number of e-commerce websites myself, I can tell you that this type of "store" creates high-paying positions for web developers, web designers, and project managers. And yes, also crappy low-paid positions for customer service and support. But they also create a lot of mid-range jobs in shipping, transportation, and logistics. I live in an area where Amazon.com has five warehouses, employing thousands of people, ranging from the people who inventory boxes, drive forklifts, and load and unload trucks to the people who install, manage, and develop the technologies used to make the facilities more efficient and the people who handle the logistical planning that goes into moving hundreds of thousands of packages every day.
Not only that, but most of the growth for UPS and FedEx over the past 10-15 years has come from online shopping, and that means thousands of drivers, handlers, and even airline pilots (the area I live in also has a huge FedEx hub that handles hundreds of package-carrying 747s every day, also creating a large number of jobs).
This is a simple example of an economic principle called "Creative Destruction," a term used to refer to the way in which old industries are destroyed (or greatly reduced) by newer and better industries. The classic example is of buggy-whip manufacturers, who went out of business with the advent of the automobile. Another good example would be blacksmiths... since Bessemer invented a better process for working steel in higher volumes, hundreds of thousands of jobs have been created, steel manufacture has dropped in price, and technologies such as airplanes and automobiles have become possible, but obviously the blacksmithing industry has suffered. The same thing is gradually happening in retail: physical retailers are going out of business, or seeing greatly reduced business, as people do more of their shopping from home. This makes us more efficient shoppers, as we can comparison shop hundreds of stores in seconds, saving us time and frustration. It also results in cost savings, as we can generally purchase products cheaper through online retailers (mostly because they can save on the cost of putting up hundreds or thousands of storefronts across the country, all staffed with salespeople) giving consumers more money to spend on other things. But it obviously hurts the traditional retailers and, perhaps moreso, commercial real estate interests. In the future the resources that went into those industries will be spent in other industries to help them develop and prosper.
Less space needed at home: We need to redesign houses to take full benefit of robotics. Look at Roombas. They really should go into a slot built into the wall and come out of that slot to clean. Similarly, we should have recessed places in walls for flat panel displays. I'd also like to see slide-out sinks in bathrooms and other stuff that isn't always there in your way.
The labor market sure looks grim for people who aren't bright enough or coordinated enough or disciplined enough to develop skills.
Those Amazon warehouses are eventually going to contain no humans. From a previous post:
What about the grocery stores? Well, no need for human check-out if robots get the food off the shelves. Kiva warehouse robots cut out human labor. These robots are going to enable automated local warehouses. So imagine grocery stories replaced with automated warehouses loading automated delivery vehicles to deliver groceries to houses. Deliveries could be scheduled to happen when you are at home so that getting perishables into the fridge in a timely manner won't be a problem.
Malls really aren't anything new (as in 20th century new). People have been going to markets--sometimes just a once-a-week smattering of tables in the center of a village, other times a more or less permanent grouping of sellers in larger towns. Trajan's Forum in Rome was a major construction project begun in 107 A.D. and contained Trajan's Markets, a six-story high complex of shops, offices, and depots. Bazaars and souks with their warrens of shops have flourished in Middle Eastern and Northern African countries for thousands of years. Covered arcades and gallerias filled with shops developed in Europe in the 18th and 19th centuries. The American version began showing up early in the 20th century but didn't really take off until the post-war period, gaining more and more visibility in the late 50s and 60s. It's difficult to believe that something that meets so many human needs and that has met them for so long will die out now.
That is not to deny that many American malls are in trouble these days. Many have closed and others probably should since they are more empty than full. The problems most likely have come about because of an unfortunate confluence of events. The economic woes of the last half dozen years have left most of us with less money to spend. In addition, some people have indeed turned to the internet for shopping for convenience, lower prices, and a world of variety. (Although I must add that before the net, I knew a fair number of people who did a lot of their shopping from mail order catalogs, even people who lived within an easy distance of a good mall for much the same reasons.) Another problem is that malls were, in many locations, overbuilt; in some areas of declining or stagnant populations new shopping centers still kept popping up relentlessly; in high growth areas, the number of malls increased faster than the population. Other factors affecting malls were the advent of big box stores (themselves in trouble now, of course), the renewed appeal of city living for many, and the virtualization of life for many teenagers who would rather text one another than actually, you know, talk to somebody. How this will all play out in the end is anybody's guess.